MONTREAL — Last week, MTY Food Group Inc. reported its results for the second quarter ended May 31, 2020 and outlined the impact of important operational challenges brought on by COVID-19, including the temporary closure of 2,757 locations at peak level and dramatically reduced sales for many of the locations that remained in operation.
“While our locations are now gradually re-opening, overall customer traffic remains affected by various local regulations and changes in consumer behaviour resulting from work-from-home policies, as well as new habits created by shelter-in-place measures that were in effect for a considerable amount of time,” says Eric Lefebvre, Chief Executive Officer of MTY. “During the quarter, we were successful in negotiating an amendment to our existing credit facility that will provide more financial flexibility going forward and reduces the uncertainty related to our capital structure. Very early on in the COVID-19 pandemic, we took decisive actions, implementing a range of measures destined to financially help our franchisees who were facing an abrupt halt in their business.”
As a result, he says, the company also had to implement drastic cost-reduction measures, which resulted in the quarter’s recurring controllable expenses decreasing by more than $10 million.
“Although the level at which we reduced our operations is not sustainable in the long run, we will continue to aggressively manage our cash liquidity and adjust to the volatile market conditions,” says Lefebvre.
With the important decline in system sales, MTY’s EBITDA decreased by 47 per cent to $18.2 million. As an indicator, MTY’s network lost a total of 138,931 days of operations.
“Papa Murphy’s take’n’bake concept had very good traction in the context of COVID-19 and its contribution to consolidated EBITDA was significant. To assist our franchisees in this crisis, we deferred the payment of royalties until September 2020 for an amount of $7.3 million. With the uncertainty created by COVID-19 and the impact on impairment indicators, we recorded a non-cash impairment charge of $120.3 million during the quarter.”
According to Lefebvre, “with cash on hand at the end of the quarter just shy of $50 million, over $190-million available on our credit facilities and more flexibility provided by our amended financial covenants, MTY remains in a solid financial position to execute its recovery plan and eventually pursue its growth strategy. Over the next few quarters, our primary focus is to re-open restaurants and provide customers with a safe and friendly environment and optimize the profitability of our restaurants despite the limits and restrictions.”